Sizzling Real Estate Market Persists  | Ezine Daddy

This single family home at 20 Winter Street in Montpelier recently sold for $701,000. courtesy photo.

A highly competitive local real estate market that has lasted since the pandemic began, fueled by low mortgage rates and an influx of foreigners, has pushed prices to record highs and will continue into 2022, according to local real estate agents.

Montpelier has already seen impressive home sales in 2022. According to MLS, 20 Winter Street sold for $701,000, 12 Isabel Circle for $900,000 and 95 Inglenook Drive for $1.075 million. Also, a property at 170 Spring Hollow Lane, which is listed at $799,000, appears to be under contract. In 2021, the most expensive sale in the city was $645,000.

Montpelier is not unique. Across the Central Vermont region, prices have risen, inventories remain low, multiple bidding is common and properties are selling fast, realtors say.

Mortgage rates on the rise

At the same time, mortgage rates are rising and are expected to rise further over the next year or so as the Federal Reserve hikes interest rates to quell inflation. Experts say this is likely to hurt demand if interest rates rise as much as expected. The average 30-year fixed-rate mortgage rate nationwide rose to 4.72% on April 7, according to mortgage giant Freddie Mac.

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Federal Reserve Chair Jerome Powell clarified the impact of higher interest rates on housing in a testimony before the Senate earlier this month. “Housing is a very interest rate sensitive sector and rates moving back to more normal levels should help cool housing markets,” he said.

Demand remains high

“There can be dozens of showings on a new listing, and it’s not uncommon to see six or eight good deals on a home,” said Ray Mikus, owner of Greenlight Real Estate. “It’s a great market for sellers, but a really challenging market for buyers.”

Tim Heney of Heney Realtors said the local market “accelerated in 2021 and continued to accelerate in early 2022.” Fierce competition among buyers means properties in central Vermont are closing quickly, with properties in Montpelier selling the fastest, according to Heney.

In 2021, the average days on the market before closing for single-family homes sold through MLS in Montpelier was just 19 days, compared to 57 days in 2020 and 74 days in 2019, according to figures provided by Heney.

Inventory is low

Due to the rapid sales, the inventory of properties for sale is minimal at any given time. In Montpelier now, sometimes there can only be “one or two or three” dwellings in stock that are not under contract, Heney said. “There’s a lot of demand here,” Mikus said. “I could sell a three to four bedroom house in Montpelier for $350,000 any day of the week.”

Real estate agent Jeanne Felmly of Dome Real Estate Group said buyers are drawn to Montpelier because it is “eclectic, with a real sense of community where people live and work. The fact that it’s a friendly, walkable city is a big deal for a lot of people.”

High demand = higher prices

Unsurprisingly, high demand has resulted in higher prices. Heney’s figures, which include both MLS and private sales, show that the highest average selling price for residential properties in the capital region in 2021 was in Montpelier at $326,797, followed by $313,866 in the U-32 cities.

However, these prices did not reflect large increases over the course of 2020, possibly because prices in Montpelier and U-32 cities had already risen by double-digit percentages in the first year of the pandemic. Montpelier’s median price for 2021 increased by just 2.57% year-on-year, while the U-32 city’s median price fell by 5.33%.

The price increases in 2021 were much higher in the surrounding cities with lower prices. The median home price in Barre City rose 36.6% to $203,097. In Williamstown, the average price increased by 32.2% to $259,976 and in Northfield by 27.36% to $261,613.

Those increases far exceeded the average 2021 housing increases of 16.4% in Vermont and 16.9% nationally reported by brokerage organizations, and may be due at least in part to a kind of domino effect that pushed buyers to broaden their focus.

Felmly said buyers squeezed out of Chittenden County’s “aggressive and competitive” market are now looking in central Vermont, while locally-focused buyers must look further afield themselves. “I have a client who was initially interested in Middlesex but is now looking everywhere from Hyde Park to Williamstown,” she said.

However, the rapidly rising prices for petrol and heating oil could begin to change buyers’ location calculations. “Buyers are now talking more about fuel prices,” reported Mikus. “They want to live close to the city, in an energy-efficient house.”

While today’s prices are very high by local standards, they are still well below prices in hotter markets. The average home price is currently around $800,000 in California and $1.5 million in San Francisco. Much closer to home, the median selling price in Stowe in 2021 was $883,941, according to Vermont Realtors, up 15.7% year over year.

However, whether unprecedented demand and soaring property prices will continue into 2022 is uncertain given variables such as rising mortgage rates, war in Europe, inflation and signs of a slowing economy or even a recession in a year or two.

Mikus said higher mortgage rates have not yet impacted demand as rates are still reasonable by historical standards. The buyers who could be hit the hardest if interest rates rise will be those looking for cheaper homes and need a large mortgage, he said.

So far this year, buyers are struggling with a dwindling inventory. Washington County had 63 new registrations in January and February, up from 92 in the first two months of 2020.

But spring is traditionally the time of year when more deals hit the market, and that trend continues this year, these three local agents say. The economy seems to be behind more of their decisions.

“I asked a seller we work with why he’s selling now,” Mikus noted. “He said it’s because the market is really good at the moment, with prices much higher than two years ago.”


What drove the hot real estate market?

Low mortgage rates. National median interest rates fell to a record low of 2.65% for a 30-year fixed-rate mortgage in January 2021, allowing buyers to afford higher-priced homes. Now buyers are scrambling for deals before prices go up.

cash sale. From last March through this March, 28.4% of Washington County home sales were all cash deals, up from 25.5% in the previous 12-month period. Cash buying has likely been fueled by the rise in stock markets in recent years and the fact that out-of-states that have sold in larger markets can often buy at lower prices here.

More buyers from abroad. Climate change concerns are one factor driving buyers to Vermont, but the COVID-19 pandemic has been an even bigger factor. Not only did some people want to flee to more rural areas, but employees who could work from home were suddenly free to move wherever they wanted. Remote workers who move into the state often bring higher wages and salaries than local businesses pay, allowing them to bid more for homes than local buyers. However, realtors say most local buyers are still Vermont natives and eager to buy homes.

Demographic change. Many Millennials – now the largest generational group – were happy to rent until recently, but are now reaching an age where they want to buy a home. Meanwhile, a significant number of baby boomers — some with deep pockets — are trying to downsize into homes of the same size that first-time buyers are chasing.

Slow construction of new houses. Fewer construction workers and the high cost of building materials have hampered construction. During the 1980s, Vermont’s primary home supply grew an average of 1.8% each year, but that slowed to 0.6% in the decade ending 2020, according to Housingdata.org. Predictions over the past decade that Vermont’s population would decline, which may now prove false, may also have prompted builders to move slowly.

A lack of sellers. There has been a shortage of sellers in recent years, possibly because of the pandemic but also because it is difficult to find a new home in this market here or anywhere else. And even before the pandemic, there was a trend for people to stay in their homes longer before selling, reducing sales.

According to a recent analysis by real estate brokerage firm Redfin, homeowners stay in their homes an average of 13 years, up from 8 years in 2010. “Unless people move on, there are fewer and fewer homes available for new home buyers,” Redfin’s chief economist said. Higher mortgage rates can encourage even more sellers to stay in their homes when their current interest rates are low.

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